STOO CASE 2-2 STARNES-BRENNER MACHINE TOOL COMPANY—TO BRIBE OR NOT TO BRIBE The Starnes-Brenner Machine Tool Company of Jowa City, Iowa, has a small one-man sales office headed by Frank Rothe in Latino, a major Latin- American country. Frank has been in Latino for about 10 years and is retiring this year; his re- placement is Bill Hunsaker, one of Starnes-Bren- ner’s top salesmen. Both will be in Latino for about eight months, during which time Frank will show Bill the ropes, introduce him to their principal customers and, in general, prepare him to take over. Frank has been very successful as a foreign representative in spite of his unique style and, at times, complete refusal to follow company pol- icy when it doesn't suit him. The company hasn't really done much about his method of operation, although from time to time he has angered some top company men. As President McCaughey,CASE 2.2 STARNES-BRENNER MACHINE TOO! COMPANY—TO BRIBE OR NOT TO BRIBE = 667, who retired a couple of years ago, once re- marked toa vice president who was complaining, about Frank, “If he’s making money—and he is (more than any of the other foreign offices)— then leave the guy alone.” When McCaughey retired, the new chief immediately instituted or- ganizational changes that gave more emphasis to the overseas operations, moving the company toward a truly worldwide operation into which a Joner like Frank would probably not fit. In fact, one of the key reasons for selecting Bill as Frank’s replacement, besides Bill's record as a top salesman, is Bill’s capacity as an organization man, He understands the need for coordination among operations and will cooperate with the home office so the Latino office can be expanded and brought into the mainstream, The company knows there is much to be learned from Frank, and Bill's job is to learn everything possible. The company certainly doesn’t want to continue some of Frank’s prac- tices, but much of his knowedge is vital for continued, smooth operation. Today, Starnes- Brenner's foreign sales account for about 25 per- cent of the company's total profits, compared with about 5 percent only 10 years ago. The company is actually changing character, from being principally an exporter without any real concer for continuous foreign market rep- resentation to worldwide operations where the foreign divisions are part of the total effort rather than a stepchild operation. In fact, Latino is one of the last operational divisions to be assimilated into the new organization, Rather than try to change Frank, the company has been waiting for him to retire before making any significant ad- justments in their Latino operations. Bill Hunsaker is 36 years old with a wife and three children; he is a very good salesman and administrator although he has had no foreign experience. He has the reputation of being fair, honest, and a straight shooter. Some, back at the home office, see his assignment as part of a grooming job for a top position, perhaps even- tually the presidency. The Hunsakers are now settled in their new home after having been in Latino for about two weeks. Today is Bill's first day on the job. When Bill arrived at the office, Frank was on. his way to a local factory to inspect some Starnes- Brenner machines that had to have some adjust- ments made before being acceptable to the Lati no government agency buying them, Bill joined Frank for the plant visit, Later, after the visit, we join the two at lunch. Bill, tasting some chili, remarks, “Boy! this certainly isn’t like the chili we have in America.” “No, it isn't, and there's another difference, to... the Latinos are Americans and nothing angers a Latino more than to have a ‘Gringo’ refer to the United States as America as if to say that Latino isn't part of America also. The Latinos rightly consider their country as part of America (take a look at the map) and people from the United States are North Americans at best. So, for future reference, refer to home either as the United States, States, or North America, but, for gosh sakes, not just America. Not to change the subject, Bill, but could you see that any change had been made in those $-27s from the standard model?" “No, they looked like the standard. Was there something out of whack when they arrived?" “No, T couldn't see any problem—I suspect this is the best piece of sophisticated bribe-tak- ing I've come across yet. Most of the time the Latinos are more ‘honest’ about their mordidas than this.” “What's a mordida?” Bill asks. “You know, kumshaw, dash, bustarella, mordida; they are all the same: a little grease to expedite the action. Mordida is the local word for a slight offering or, if you prefer, bribe,” says Frank. Bill quizzically responds, “Do we pay bribes to get sales?” “Oh, it depends on the situation but its cer- tainly something you have to be prepared to deal with.” Boy, what a greenhorn, Frank thinks to himself, as he continues, “Here’s the story. When the $-27s arrived last January, we began uncrat- ing them and right away the Jefe engineer (aJefe, that’s the head man ra careful examination and ital defect in the machines; nery would be dangerous e if it wasn’t corrected. I uldn’t see anything wrong ur staff engineer check all rrect any flaws that might said there wasn’t enough gineer to come from the nes could be adjusted lo- y him and he would make \gements. So, what do you s way and there would be d, maybe there was some- e things have been known life of me, I can’t see that lone since the machines d. So, let’s face it, we just tty darn big bribe at that— chine—what makes it so ’s the second one I’ve had nt.” Bill. 1 when we were transfer- atino trucks, it was hot and y as molasses. It took them *r one machine to a Latino thers to go. It seemed that he dock boss about speed- got slower. Finally, out of him a fistful of pesos and, ext three hours they had. ed. Just one of the local ness. Generally though, it level where wages don’t too well.” i Bill asks, “What does that »f course, but I look at it as osts of doing business—I but when I have to, I do.” ies, “I don’t like it, Frank, icts, they’re priced right, we give good service, and keep pl parts in the country, so why should we | pay bribes to the buyer? It’s just no way t business. You've already had to Pay two on one shipment; if you keep it up, the y going to get around and you'll be Paying at level. Then all the profit goes out the y doy you know, once you start, where do you é: Besides that, where do we stand | Foreign Bribery Act makes i waa ; Paying bribes | you've just paid illegal. 'd say the best poli to never start; you might lose a few sales but k be known that there are no bribes; we sell best, service the best at fair prices, and that’s a “You mean the Foreign Corrupt Practices don’t you?” Frank asks and continues in a— not really so out of touch—tone of voice “Haven't some of the provisions of the Forei Corrupt Practices Act been softened somewha “Yes, you're right, the provisions on paying mordida or grease have been softened but pay- | ing the government official is still illegal, soften- ing or not,” replies Bill. 7 Oh boy! Frank thinks to himself as he replies, “Look, what I did was just peanuts as far as the ~ Foreign Corrupt Practices Act goes. The people a we pay off are small and, granted we give good — service, but we've only been doing it for the last — year or so. Before that I never knew when I was — going to have equipment to sell. In fact, we only had products when there were surpluses state~ side. I had to pay the right people to get sales, — and besides you’re not back in the States any longer. Things are just done different here. You 4 follow that policy and I guarantee that you'll have fewer sales because our competitors from Germany, Italy, and Japan will pay. Look, Bill, everybody does it here; it's a way of life and a costs are generally reflected in the markup ang” overhead. There is even a code of behavior I= volved. We're not actually encouraging it 2 spread, just perpetuating an accepted way doing business.” Patiently and slightly condescendingly, Bill r=CASE 2-2. STARNES-BRENNER MACHINE TOOL COMPANY—TO BRIBE OR NOT TO BRIBE = 669. plies, “I know, Frank, but wrong is wrong and we want to operate differently now. We hope to set up an operation here on a continuous basis; we plan to operate in Latino just like we do in the United States. Really expand our operation and make a long-range market commitment, grow with the country! And, one of the first things we must avoid are unethical. ..” Frank interrupts, “But really, is it unethical? Everybody does it, the Latinos even pay mor- didas to other Latinos; it’s a fact of life—is it really unethical? T think that the circumstances that exist in a country justify and dictate the behavior. Remember man, ‘When in Rome, do as the Romans do."" Almost shouting, Bill blurts out, “I can’t buy that We know that our management practices and techniques are our strongest point. Really all we have to differentiate us from the rest of our competition, Latino and others, is that we are better managed and, as far as I'm concerned, graft and other unethical behavior have got to be cut out to create a healthy industry. In the long, run, it should strengthen our position. We can’t build our futures on illegal and unethical prac- tices Frank angrily replies, “Look, it's done in the States all the time. What about the big dinners, drinks, and all the other hanky-panky that goes on? Not to mention PACs (Political Action Com- mittee) payments to congressmen, and all those high speaking fees certain congressmen get from special interests. How many congressmen have gone to jail or lost reelection on those kinds of things? What is that, if it isn’t mordida, the North American way? The only difference is that instead of cash only, in the United States we pay in merchandise and cash.” “That's really not the same and you know it Besides, we certainly get a lot of business trans- acted during those dinners even if we are paying the bill.” Bull, the only difference is that here bribes g0 on in the open; they don’t hide it or dress it in foolish ritual that fools no one. It goes on in the United States and everyone denies the existence of it. That's all the difference—in the United States we're just more hypocritical about it al.” “Look,” Frank continues almost shouting, “we are getting off on the wrong foot and we've got eight months to work together. Just keep your eyes and mind open and let's talk about it again ina couple of months when you've seen how the whole country operates; perhaps then you won't be so quick to judge it absolutely wrong.” Frank, lowering his voice, says thoughtfully, “I know it's hard to take; probably the most dis- turbing problems in underdeveloped countries is the matter of graft. And, frankly, we don’t do much advance preparation so we can deal firmly with it. It bothered me at first; but, then I figured it makes its economic contribution, too, since the payoff is as much a part of the economic process as a payroll, What's our real economic role anyway, besides making a profit, of course? Are we developers of wealth, helping to push the country to greater economic growth, or are we missionaries? Or should we be both? I really don't know, but I don't think we can be both simultaneously, and my feeling is that as the company prospers, as higher salaries are paid, and better standards of living are reached, we'll see better ethics. Until then, we've got to operate or leave and, if you are going to win the opposi- tion over, you'd better join them and change them from within, not fight them.” Before Bill could reply, a Latino friend of Frank's joined them and they changed the topic of conversation. © QUESTIONS 1. Is what Frank did ethical? Whose ethics? La- tino’s or the United States? 2. Are Frank's two different payments legal un- der the Foreign Corrupt Practices Act as amended by the Omnibus Trade and Com- petitiveness Act of 1988?670 PARTY CASES 3, Identify the types of payments made in the case; that is, are they lubrication, extortion, or subornation? 4, Frank seemed to imply that there is a dif ference between what he was doing and what happens in the United States, Is there any difference? Explain. 5. Are there any legal differences between the money paid to the dock workers and the money paid the jefe (government official)? Any ethical differences? 6. Frank's attitude seems to imply that a for- cigner must comply with all local customs, but some would say that one of the contribu tions made by US. firms is to change local ways of doing business. Who is right? Should Frank's behavior have been any dif ferent had this not been a government con- ‘tract? If Frank shouldn't have paid the bribe, what should he have done, and what might have been the consequences? What are the company interests in this prob- lem? Explain how this may be a good example of the SRC (self-reference criterion) at work Do you think Bill will make the grade in Latino? Why? What will it take? How can an overseas manager be prepared to face this problem?